Whistleblower Rocks Openwave
It's almost never a good thing when a company says it's going to delay reporting their earnings.
But when it's delayed because a whistleblower is sounding alarms about the company's recent financials, watch out.
That was the unsavory situation that
Openwave
(OPWV)
has found itself.
Its stock fell 6% Tuesday after it made an SEC filing that said "it will delay the filing of its quarterly report on Form 10-Q for the three months ended March 31, 2008 pending the conclusion of an internal investigation being conducted ... into allegations made by an employee relating to attempts by certain members of senior management to manage financial results."
"Managing financial results" sounds like exactly what a company's management should be doing. A cynic might point out that this is proof that Openwave's management has
not
been managing, but it's more likely this is a very nuanced way of saying someone in the know knows something fishy about Openwave's recent numbers.
The board's audit committee -- all independent directors, and including former
Intel
(INTC) - Get Report
controller Patrick Jones and ex-
Palm
(PALM)
CEO Robin Abrams -- are working with independent counsel to look into the charges, but so far "the investigation has not reached any conclusion that the company's previously issued financial statements and earnings releases were materially misleading," the company said in a statement.
Openwave details its
whistle blower policy
on its Web site. Infringements could be as mild as an accidental aberration from internal controls or as serious as insider trading or fraud.
The Redwood City, Calif.-based mobile-device software maker, which was formed through the merger of
Software.com
and
Phone.com
, has seen its stock slide 87 percent in the last two years, dipping below $2 a share on Wednesday.
Although it offers mobile-phone browsers, the company has seen choppy revenue and steady losses as it struggles for growth. Openwave bought mobile-music company Musiwave in 2005 for $121 million, only to sell it two years later to
Microsoft
(MSFT) - Get Report
for $50 million.
The company has seen a lot of mobility in its executive ranks. In March 2007, its CEO David Peterschmidt resigned after a little more than two years on the job. Like the man he replaced, Don Listwin, Peterschmidt took a seat on the company's board and then quickly resigned from that job too.
Peterschmidt was replaced by Robert Vrij, a former CEO of Lucent Europe who only two months earlier had been hired by Openwave as an executive vice president. Six months later Vrij was also named Chairman of the Board. Then last month, Vrij abruptly resigned, only he didn't get a seat on the board as a parting gift.
Three months before Vrij's departure, Jean-Yves Dexmier resigned abruptly as chief financial officer. Dexmier had been on the job less than six months.
Got all that?
Bruce Coleman, the current CEO in the hot seat in Openwave's corner office, is a veteran of tech turnarounds. He cut his teeth at mainframe-software maker Boole and Babbage and has also served as interim CEO at
Stamps.com
(STMP) - Get Report
,
Vernier Networks
,
Webtrends
and
Websense
(WBSN)
. That experience may be what Openwave needs now.
At best, an investigation is likely to be a distraction for the painful restructuring that Openwave is undertaking. In the most recent quarter, the company took a $6 million charge for severance payments. It plans to take more charges worth between $10 million and $13 million in the next two quarters.
And even then, current CEO Anne Brennan
recently, the full impact of the restructuring won't be seen until the end of calendar 2008.
At worst, however, a restatement of recent earnings could undermine investor confidence in the stock and limit options for raising new capital if needed. Openwave has $160 million in convertible debt coming due this September.
So a lot of investors will be watching closely the results of Openwave's investigation as well as the 10-Q statement once it's filed. If the stock is ever going to turn around, the company badly needs good news, not more bad news.